UNITED STATES
	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549

	FORM 10-Q


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007 or

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to __________________


Commission File No. 0-13299

	MORGAN STANLEY CORNERSTONE FUND III L.P.

	(Exact name of registrant as specified in its charter)

		New York						     13-3190919
(State or other jurisdiction of		   	  	  (I.R.S. Employer
incorporation or organization)			        Identification No.)

Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY                                 	         10017
(Address of principal executive offices)	  	      (Zip Code)

Registrant?s telephone number, including area code     (212) 905-2700





(Former name, former address, and former fiscal year, if changed since
last report)








Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes    X       	No___________

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer.  See definition
of ?accelerated filer and large accelerated filer? in Rule 12b-2 of the
Exchange Act.  (Check one):

Large accelerated filer___Accelerated filer____Non-accelerated filer X

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).  Yes___  No X


	<page> <table> MORGAN STANLEY CORNERSTONE FUND III L.P.

	INDEX TO QUARTERLY REPORT ON FORM 10-Q

	March 31, 2007

<caption>



PART I. FINANCIAL INFORMATION

				<c>
Item 1. Financial Statements

		Statements of Financial Condition as of March 31, 2007
		(Unaudited) and December 31, 2006..........................2

		Statements of Operations for the Quarters Ended
		March 31, 2007 and 2006 (Unaudited) .......................3

		Statements of Changes in Partners? Capital for the
		Quarters Ended March 31, 2007 and 2006 	(Unaudited).........4

		Statements of Cash Flows for the Quarters Ended
		March 31, 2007 and 2006 (Unaudited)........................5

		Notes to Financial Statements (Unaudited)...............6-12

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.......13-23

Item 3.	Quantitative and Qualitative Disclosures about
			Market Risk.........................................23-37

Item 4.	Controls and Procedures................................37

Item 4T.	Controls and Procedures................................37


PART II. OTHER INFORMATION

Item 1A.Risk Factors...........................................38

Item 6.	Exhibits...............................................38
</table>


<page> <table> PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF FINANCIAL CONDITION
<caption>
	                     March 31,	    December  31,
	      2007     	         2006
	                      $	      $
	                     (Unaudited)
ASSETS

	<c>	<c>
Equity in futures interests trading accounts:
	Unrestricted cash	16,896,185	18,056,766
	Restricted cash	        953,071	       2,408,811

	    Total cash	   17,849,256	    20,465,577

	Net unrealized gain on open contracts (MS&Co.)	423,297       	        489,311
	Net unrealized gain (loss) on open contracts (MSIL)	        (79,452)                   42,675

	     Total net unrealized gain on open contracts	       343,845	         531,986

	     Total Trading Equity	18,193,101  	20,997,563

Interest receivable (Morgan Stanley DW)	      60,951	          67,511
Due from Morgan Stanley DW	                   21,935	         34,489

	     Total Assets	   18,275,987	  21,099,563

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	223,212	352,302
Accrued administrative expenses	110,539	108,753
Accrued management fees	        52,982	         61,223

	     Total Liabilities	      386,733	       522,278

Partners? Capital

Limited Partners (4,766.036 and
	4,928.664 Units, respectively)	17,512,564   	20,157,999
General Partner (102.516 Units)	         376,690	       419,286

	     Total Partners? Capital	    17,889,254	  20,577,285

	     Total Liabilities and Partners? Capital                                               	   18,275,987	  21,099,563

NET ASSET VALUE PER UNIT	        3,674.45	      4,089.95
<fn>
The accompanying notes are an integral part
of these financial statements.
</table>

<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF OPERATIONS
(Unaudited)

<caption>

  	   	     For the Quarters Ended March 31,


                                                                         		           2007    	      2006
                                                                               	                       $		         $

		<c>			<c>
INVESTMENT INCOME
	Interest income (Morgan Stanley DW)		          204,140			      201,857

EXPENSES
	Brokerage commissions (Morgan Stanley DW)		228,715	265,965
	Management fees 	      	173,217	202,817
	Common administrative expenses	         24,000                              20,000
	Transaction fees and costs		         13,060	            22,506

		Total Expenses		       438,992	      511,288

NET INVESTMENT LOSS	      (234,852)	     (309,431)

TRADING RESULTS
Trading profit (loss):
	Realized			(1,627,641)	1,109,160
	Net change in unrealized		      (188,141)	       (19,904)

    		Total Trading Results		   (1,815,782)	   1,089,256

NET INCOME (LOSS)  	    (2,050,634)	      779,825


NET INCOME (LOSS) ALLOCATION

	Limited Partners                                                  		(2,008,038)	       765,804
  	General Partner                                                   		(42,596)        	         14,021


NET INCOME (LOSS) PER UNIT

	Limited Partners                                                   		 (415.50)       	   136.77
	General Partner                                                   		         (415.50)	        136.77



<fn>

	The accompanying notes are an integral part
	of these financial statements.
</table>


<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
	For the Quarters Ended March 31, 2007 and 2006
	(Unaudited)

<caption>



                                                              	Units of
	Partnership	Limited	General
	     Interest   	  Partners  	   Partner   	     Total
		$	$	$

	<c>	<c>	<c>	<c>
Partners? Capital,
December 31, 2005	5,796.009	22,552,335	406,073	22,958,408

Net Income	?	765,804	14,021	779,825

Redemptions	   (186.582)	     (751,708) 	        ?  	      	        (751,708)

Partners? Capital,
March 31, 2006	         5,609.427	  22,566,431	             420,094	 22,986,525




Partners? Capital,
December 31, 2006	5,031.180	20,157,999	419,286	20,577,285

Net Loss	?	(2,008,038)	(42,596)	(2,050,634)

Redemptions	   (162.628)	     (637,397) 	        ?  	      	        (637,397)

Partners? Capital,
March 31, 2007	            4,868.552	  17,512,564	             376,690	 17,889,254






<fn>





The accompanying notes are an integral part
of these financial statements.
</table>




<page> <table>	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF CASH FLOWS
(Unaudited)

<caption>

	         For the Quarters Ended March 31,

	      2007     	      2006
	    $	      $


CASH FLOWS FROM OPERATING ACTIVITIES

			<c>	<c>
Net income (loss)	 (2,050,634)		      779,825
Noncash item included in net income (loss):
	Net change in unrealized		188,141	   19,904

(Increase) decrease in operating assets:
	Restricted cash		1,455,740	(1,900,352)
	Interest receivable (Morgan Stanley DW)		 6,560	(7,392)
	Due from Morgan Stanley DW                 	  	    12,554	(37,659)

Increase (decrease) in operating liabilities:
	Accrued administrative expenses	    1,786		6,018
	Accrued management fees                                               		        (8,241)	             117

Net cash used for operating activities  		    (394,094)	  (1,139,539)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units	  	(766,487)	   (739,874)

Net cash used for financing activities               	    (766,487)	   (739,874)

Net decrease in unrestricted cash 	(1,160,581)	 (1,879,413)

Unrestricted cash at beginning of period                                     		    18,056,766	                 21,002,788

Unrestricted cash at end of period                                              	 	   16,896,185	                 19,123,375

<fn>









	The accompanying notes are an integral part
	of these financial statements.


</table>

<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)

The unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Morgan Stanley Cornerstone Fund III L.P. (the ?Partnership?).
The financial statements and condensed notes herein should be read
in conjunction with the Partnership?s December 31, 2006 Annual
Report on Form 10-K.

1.  Organization
Morgan Stanley Cornerstone Fund III L.P. is a New York limited
partnership organized in 1983 to engage in the speculative trading
of futures contracts, options on futures contracts, and forward
contracts on foreign currencies and other commodity interests. The
Partnership is one of the Morgan Stanley Cornerstone Funds,
comprised of the Partnership, Morgan Stanley Cornerstone Fund II
L.P., and Morgan Stanley Cornerstone Fund IV L.P.

The Partnership?s general partner is Demeter Management
Corporation (?Demeter?). Effective April 1, 2007, Morgan Stanley
DW Inc. (?Morgan Stanley DW?), which previously acted as the non-
clearing broker, was merged into Morgan Stanley & Co. Incorporated

<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


(?MS&Co.?), which has assumed all of the responsibilities of
Morgan Stanley DW.  Upon completion of the merger, MS&Co. has
become the Partnership?s principal commodity broker-dealer
and also acts as the counterparty on all trading of foreign
currency forward contracts.  In addition, Morgan Stanley & Co.
International Limited (?MSIL?) serves as the commodity broker for
trades on the London Metal Exchange.  Effective April 13, 2007,
Morgan Stanley & Co. International Limited changed its name to
Morgan Stanley & Co. International plc.  The commodity brokers
prior to April 1, 2007, were Morgan Stanley DW, MS&Co., and MSIL.
 Demeter, MS&Co., and MSIL are wholly-owned subsidiaries of Morgan
Stanley. The trading managers to the Partnership are Graham
Capital Management, L.P. and Sunrise Capital Management, Inc.
(individually, a ?Trading Manager?, or collectively, the ?Trading
Managers?).

2.  Related Party Transactions
The Partnership?s cash is on deposit with Morgan Stanley DW
(through March 31, 2007), MS&Co., and MSIL in futures, forward,
and options trading accounts to meet margin requirements as
needed. Monthly, MS&Co. (Morgan Stanley DW, prior to April 1,
2007) pays the Partnership interest income on 80% of its average
daily Net Assets at a rate equal to the average yield on

<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

13-week U.S. Treasury bills. The Partnership pays brokerage
commissions to MS&Co. (Morgan Stanley DW, prior to April 1, 2007).


3.  Financial Instruments
The Partnership trades futures contracts, options on futures
contracts, and forward contracts on foreign currencies and other
commodity interests.  Futures and forwards represent contracts for
delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the
potential inability of counterparties to perform under the terms
of the contracts.  There are numerous factors which may
significantly influence the market value of these contracts,
including interest rate volatility.

The market value of exchange-traded contracts is based on the
settlement price quoted by the exchange on the day with respect
to which market value is being determined.  If an exchange-traded
contract could not have been liquidated on such day due to the
operation of daily limits or other rules of the exchange, the
settlement price shall be the settlement price on the first
subsequent day on which the contract could be liquidated.  The
market value of off-exchange-traded contracts is based on the
fair market value quoted by the counterparty.

<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership?s contracts are accounted for on a trade-date
basis and marked to market on a daily basis. The Partnership
accounts for its derivative investments in accordance with the
provisions of Statement of Financial Accounting Standards No.
133, ?Accounting for Derivative Instruments and Hedging
Activities? (?SFAS No. 133?).  SFAS No. 133 defines a derivative
as a financial instrument or other contract that has all three of
the following characteristics:

1)	One or more underlying notional amounts or payment
provisions;
2)	Requires no initial net investment or a smaller initial net
investment than would be required relative to changes in
market factors;
3)	Terms require or permit net settlement.

Generally, derivatives include futures, forward, swap or options
contracts, and other financial instruments with similar
characteristics such as caps, floors, and collars.

The net unrealized gains on open contracts, reported as a
component of ?Equity in futures interests trading accounts? on the
Statements of Financial Condition, and their longest contract
maturities were as follows:

<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

	Net Unrealized Gains
	on Open Contracts	Longest Maturities
		Off-			Off-
	Exchange-	Exchange-		Exchange-	Exchange-
Date	 Traded  	  Traded   	Total	 Traded  	 Traded
	 $	  $	$

Mar. 31, 2007	23,604	320,241	343,845	Sep. 2008	Jun. 2007
Dec. 31, 2006	413,691	118,295	531,986	Jun. 2008	Mar. 2007

The Partnership has credit risk associated with counterparty non-
performance.  As of the date of the financial statements, the
credit risk associated with the instruments in which the
Partnership trades is limited to the amounts reflected in the
Partnership?s Statements of Financial Condition.



The Partnership also has credit risk because Morgan Stanley DW
(through March 31, 2007), MS&Co., and MSIL act as the futures
commission merchants or the counterparties, with respect to most
of the Partnership?s assets. Exchange-traded futures, exchange-
traded forward, and exchange-traded futures-styled options
contracts are marked to market on a daily basis, with variations
in value settled on a daily basis. Morgan Stanley DW (through
March 31, 2007), MS&Co., and MSIL, each as a futures commission
merchant for the Partnership?s exchange-traded futures, exchange-
traded forward, and exchange-traded futures-styled options
contracts, are required, pursuant to regulations of the Commodity

<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Futures Trading Commission (?CFTC?), to segregate from their own
assets, and for the sole benefit of their commodity customers, all
funds held by them with respect to exchange-traded futures,
exchange-traded forward, and exchange-traded futures-styled
options contracts, including an amount equal to the net unrealized
gains (losses) on all open exchange-traded futures, exchange-
traded forward, and exchange-traded futures-styled options
contracts, which funds, in the aggregate, totaled  $17,872,860 and
$20,879,268 at March 31, 2007 and December 31, 2006, respectively.
With respect to the Partnership?s off-exchange-traded forward
currency contracts, there are no daily settlements of variation in
value, nor is there any requirement that an amount equal to the
net unrealized gains (losses) on such contracts be segregated.
However, the Partnership is required to meet margin requirements
equal to the net unrealized loss on open forward currency
contracts in the Partnership accounts with the counterparty, which
is accomplished by daily maintenance of the cash balance in a
custody account held at Morgan Stanley DW for the benefit of
MS&Co.  With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of MS&Co.,
the sole counterparty on all such contracts, to perform. The
Partnership has a netting agreement with MS&Co.  This agreement,
which seeks to reduce both the Partnership?s and MS&Co.?s exposure


<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

on off-exchange-traded forward currency contracts, should
materially  decrease the Partnership?s credit risk in the event of
MS&Co.?s bankruptcy or insolvency.

4.  New Accounting Developments
In July 2006, the Financial Accounting Standards Board (?FASB?)
issued interpretation No. 48, ?Accounting for Uncertainty in
Income Taxes ? an interpretation of FASB Statement 109? (?FIN
48?).  FIN 48 clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position must
meet before being recognized in the financial statements.  FIN 48
is effective for the Partnership as of January 1, 2007.  Based on
its analysis, management believes that the adoption of FIN 48
will not impact the Partnership?s Financial Statements.




In September 2006, the FASB issued SFAS No. 157, ?Fair Value
Measurements? (?SFAS No. 157?).  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements.  SFAS NO. 157 is
effective for the Partnership as of January 1, 2008.  The impact
to the Partnership?s Financial Statements, if any, is currently
being assessed.





<page>
Item 2. MANAGEMENT?S DISCUSSION AND ANALYSIS OF FINANCIAL
	   CONDITION AND RESULTS OF OPERATIONS


Liquidity.  The Partnership deposits its assets with Morgan
Stanley DW (through March 31, 2007), MS&Co., and MSIL as commodity
brokers in separate futures, forward, and options trading accounts
established for each Trading Manager.  Such assets are used as
margin to engage in trading and may be used as margin solely for
the Partnership?s trading. The assets are held in either non-
interest bearing bank accounts or in securities and instruments
permitted by the CFTC for investment of customer segregated or
secured funds.  Since the Partnership?s sole purpose is to trade
in futures, forwards, and options, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.

The Partnership?s investment in futures, forwards, and options
may, from time to time, be illiquid.  Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as ?daily price fluctuations limits? or ?daily
limits?.  Trades may not be executed at prices beyond the daily
limit.  If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be taken
nor liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the daily

<page> limit for several consecutive days with little or no
trading.

These market conditions could prevent the Partnership from
promptly liquidating its futures or options contracts and result
in restrictions on redemptions.

There is no limitation on daily price moves in trading forward
contracts on foreign currencies.  The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses.  Either of these market conditions could
result in restrictions on redemptions.  For the periods covered by
this report, illiquidity has not materially affected the
Partnership?s assets.

There are no known material trends, demands, commitments, events,
or uncertainties at the present time that are reasonably likely to
result in the Partnership?s liquidity increasing or decreasing in
any material way.

Capital Resources.  The Partnership does not have, nor does it
expect to have, any capital assets.  Redemptions of units of
limited partnership interest (?Unit(s)?) in the future will affect
<page> the amount of funds available for investments in futures,
forwards, and options in subsequent periods.  It is not possible
to estimate the amount, and therefore the impact, of future
outflows of Units.

There are no known material trends, favorable or unfavorable, that
would affect, nor any expected material changes to, the
Partnership?s capital resource arrangements at the present time.

Off-Balance Sheet Arrangements and Contractual Obligations.  The
Partnership does not have any off-balance sheet arrangements, nor
does it have contractual obligations or commercial commitments to
make future payments that would affect its liquidity or capital
resources.

Results of Operations
General.  The Partnership?s results depend on the Trading Managers
and the ability of each Trading Manager?s trading program(s) to
take advantage of price movements in the futures, forward, and
options markets.  The following presents a summary of the
Partnership?s operations for the three month periods ended March
31, 2007 and 2006, and a general discussion of its trading
activities during each period.  It is important to note, however,
that the Trading Managers trade in various markets at different
times and that prior activity in a particular market does not mean


<page> that such market will be actively traded by the Trading
Managers or will be profitable in the future. Consequently, the
results of operations of the Partnership are difficult to discuss
other than in the context of the Trading Managers? trading
activities on behalf of the Partnership during the period in
question. Past performance is no guarantee of future results.

The Partnership?s results of operations set forth in the financial
statements on pages 2 through 12 of this report are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of certain
accounting policies that affect the amounts reported in these
financial statements, including the following:  The contracts the
Partnership trades are accounted for on a trade-date basis and
marked to market on a daily basis.  The difference between their
cost and market value is recorded on the Statements of Operations
as ?Net change in unrealized trading profit (loss)? for open
(unrealized) contracts, and recorded as ?Realized trading profit
(loss)? when open positions are closed out.  The sum of these
amounts constitutes the Partnership?s trading results.  The market
value of a futures contract is the settlement price on the
exchange on which that futures contract is traded on a particular
day. The value of a foreign currency forward contract is based on
the spot rate as of the close of business.  Interest income, as
well as management fees, incentive fees, and brokerage
commissions, and transaction fees and costs of the Partnership are
recorded on an accrual basis.


<page> Demeter believes that, based on the nature of the
operations of the Partnership, no assumptions relating to the
application of critical accounting policies other than those
presently used could reasonably affect reported amounts.

For the Quarter Ended March 31, 2007
The Partnership recorded total trading results including interest
income totaling $(1,611,642) and expenses totaling $438,992,
resulting in a net loss of $2,050,634 for the quarter ended March
31, 2007. The Partnership?s net asset value per Unit decreased
from $4,089.95 at December 31, 2006 to $3,674.45 at March 31,
2007.

The most significant trading losses of approximately 2.5% were
recorded in the metals markets primarily during February and
March from long positions in silver and gold futures as prices
reversed sharply lower on concerns that a slowing Chinese economy
would reduce demand for precious metals.  Elsewhere in the metals
markets, losses were experienced from long positions in aluminum
futures during January and March as prices fell amid news of an
overabundance in supply.  Additional losses of approximately 2.4%
were experienced in the currency sector during March from long
positions in the British pound versus the U.S. dollar as the
value of the British pound dropped sharply at the beginning of
the month amid speculation that the Bank of England would not

<page> continue to increase interest rates in the near-term.
Elsewhere in the currency markets, short positions in the
Japanese yen versus the U.S. dollar resulted in losses during
February and early March as the value of the Japanese yen
reversed sharply higher against the U.S. dollar after a
combination of factors including an almost 10% drop in the
Shanghai stock market and a warning from Rodrigo Rato, Managing
Director of the International Monetary Fund, that a weak Japanese
yen "could lead to more entrenched exchange rate misalignments
that worsen global imbalances" encouraged traders to unwind short
positions in the Japanese yen against most of its major rivals.
Furthermore, investor speculation that consistently strong
economic data out of Japan might force the Bank of Japan to
continue raising interest rates in order to combat possible
inflation also pushed the value of the Japanese yen higher.
Similarly, short positions in the Swiss franc versus the U.S.
dollar incurred losses during February as the value of the Swiss
franc also reversed higher against the U.S. dollar amid worries
of a narrowing interest rate differential.  Finally, losses were
recorded during January from long positions in the New Zealand
dollar and Australian dollar versus the U.S. dollar as the value
of the U.S. dollar strengthened against these currencies after a
government report showed that U.S. job growth had been
unexpectedly higher during December 2006.  Within the global
stock index sector, losses of approximately 2.0% were experienced
<page> during late February and early March from long positions
in U.S., European, and Japanese stock index futures as prices
reversed sharply lower after the aforementioned massive sell-off
in the global equity markets that began on February 27, 2007,
following comments from former U.S. Federal Reserve Chairman Alan
Greenspan that the U.S. economy could be due for a recession.  In
addition, concerns that tighter credit conditions in China and
Japan might dampen global growth first sent Chinese stock markets
plunging before the sell-off spread to other equity markets.
Furthermore, global equity prices were negatively affected by
sub-prime loan delinquency concerns in the United States.
Additional losses of approximately 1.8% were experienced in the
global interest rate sector from short positions in U.S., German,
and British fixed-income futures as prices spiked significantly
higher during late February and early March in a flight to
quality after the worldwide sell-off that affected the global
equity and currency markets.  Additional losses in the global
interest rate futures markets were incurred from newly
established long positions in U.S. fixed-income futures as prices
moved lower later in the month on reduced demand for the ?safe-
haven? of fixed-income investments after the stabilization of the
global equity markets as investors concluded that markets had
been oversold.  Furthermore, U.S. interest rate futures prices
declined after a stronger than expected government jobs report.
Finally, losses of approximately 1.8% were recorded within the
<page> energy markets during February from short futures
positions in gasoline, heating oil, and crude oil futures as
prices reversed higher during February and March on increased
concerns that unexpected refinery shutdowns would curb fuel
stockpiles in the future.  In addition, prices were pressured
higher on rising geopolitical concerns in the Middle East after
the United Nations Security Council voted unanimously to increase
sanctions against Iran.  News that Iran had captured 15 members
of the British Royal Navy in the Persian Gulf added to investor
worries about the stability of the world?s oil supply in the
region, thus weighing on prices.  Smaller losses in the energy
markets were experienced from short positions in natural gas
futures as prices moved higher during March after the U.S.
Department of Energy reported that natural gas supplies were down
15% from a year ago.

For the Quarter Ended March 31, 2006
The Partnership recorded total trading results including interest
income totaling $1,291,113 and expenses totaling $511,288,
resulting in net income of $779,825 for the quarter ended March
31, 2006. The Partnership?s net asset value per Unit increased
from $3,961.07 at December 31, 2005 to $4,097.84 at March 31,
2006.


<page> The most significant trading gains of approximately 3.3%
were recorded in the global interest rate futures markets,
primarily during March, from short positions in U.S., European,
and Japanese interest rate futures as global bond prices trended
lower amid strength in regional equity markets and investor
sentiment that interest rates in the United States, the European
Union, and Japan would rise.  Additional gains of approximately
2.2% were experienced in the metals markets during January and
March from long positions in copper and aluminum as prices
strengthened amid news of weak supplies, forecasts for continued
buying by China, and acceleration in demand from Japan, Europe,
and the U.S.  Elsewhere in the metals markets, gains were
recorded from long futures positions in silver and gold as
precious metals prices moved higher on persistent demand from
foreign central banks.  Silver prices were also pressured higher
after news that a silver-backed Exchange Traded Fund would soon
launch and create greater investment interest in the metal.
Within the global stock index futures markets, gains of
approximately 1.9% were experienced from long positions in
European and U.S. stock index futures as global equity markets
trended higher during the quarter on strong corporate earnings,
and solid economic data.  Smaller gains of approximately 0.3%
were experienced in the agricultural markets, from long positions
in sugar futures as prices trended higher during January, moving
to their highest level since 1981 in response to a decline in
inventories, as well as from increased ethanol demand caused by
<page> higher energy prices. A portion of these gains for the
quarter was offset by losses of approximately 5.2% in the
currency sector from long U.S. dollar positions versus the Swiss
franc, euro, and Japanese yen as the value of the U.S. dollar
moved lower during January on expectations that a string of
increases in interest rates by the U.S. Federal Reserve could
possible come to an end. Also pushing the value of the U.S.
dollar lower against its rivals was speculation that China might
move to diversify some of its U.S. dollar based assets into other
currencies.  Further losses were experienced during February from
short positions in the Japanese yen relative to the U.S. dollar
as the value of the yen increased on the release of better than
expected Japanese machinery orders data and speculation that the
Bank of Japan might move to tighten monetary policy in Japan.
Additional losses during February were recorded from short
positions in the Swiss franc versus the U.S. dollar as value of
the dollar weakened amid investor concern regarding the massive
U.S. trade deficit.  Currency losses were also incurred during
March from long positions in the British pound relative to the
U.S. dollar as the value of the pound finished lower after news
that Gross Domestic Product in the United Kingdom for 2005 was
weaker than expected. Smaller losses were experienced during
March from short positions in the euro and the Swiss franc
relative to the U.S. dollar as the value of these European
currencies moved higher after the release of generally positive
economic data from the Euro-Zone reinforced expectations that
<page> European interest rates would continue to rise.  In the
energy markets, losses of approximately 0.2% were recorded,
primarily during March, from short positions in crude oil futures
as prices strengthened early in the month on supply fears fueled
by news of geopolitical tensions in Nigeria and Iran.



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures, forwards, and options.  The
market-sensitive instruments held by the Partnership are acquired
for speculative trading purposes only and, as a result, all or
substantially all of the Partnership?s assets are at risk of
trading loss.  Unlike an operating company, the risk of market-
sensitive instruments is inherent to the primary business activity
of the Partnership.

The futures, forwards, and options traded by the Partnership
involve varying degrees of related market risk.  Market risk is
often dependent upon changes in the level or volatility of
interest rates, exchange rates, and prices of financial
instruments and commodities, factors that result in frequent
changes in the fair value of the Partnership?s open positions,
and consequently in its earnings, whether realized or unrealized,
and cash flow.  Gains and losses on open positions of exchange-

<page> traded futures, exchange-traded forward, and exchange-
traded futures-styled options contracts are settled daily through
variation margin.  Gains and losses on off-exchange-traded
forward currency contracts are settled upon termination of the
contract.  However, the Partnership is required to meet margin
requirements equal to the net unrealized loss on open forward
currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the
cash balance in a custody account held at Morgan Stanley DW for
the benefit of MS&Co.

The Partnership?s total market risk may increase or decrease as
it is influenced by a wide variety of factors, including, but not
limited to, the diversification among the Partnership?s open
positions, the volatility present within the markets, and the
liquidity of the markets.

The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements.  Margin requirements generally range between 2% and
15% of contract face value.  Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership typically to be many times the total
capitalization of the Partnership.


<page> The Partnership?s past performance is no guarantee of its
future results.  Any attempt to numerically quantify the
Partnership?s market risk is limited by the uncertainty of its
speculative trading.  The Partnership?s speculative trading and
use of leverage may cause future losses and volatility (i.e.,
?risk of ruin?) that far exceed the Partnership?s experience to
date under the ?Partnership?s Value at Risk in Different Market
Sectors? section and significantly exceed the Value at Risk
(?VaR?) tables disclosed.

Limited partners will not be liable for losses exceeding the
current net asset value of their investment.

Quantifying the Partnership?s Trading Value at Risk
The following quantitative disclosures regarding the Partnership?s
market risk exposures contain ?forward-looking statements? within
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act of
1995 (set forth in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934).  All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.



<page> The Partnership accounts for open positions on the basis of
mark to market accounting principles.  Any loss in the market
value of the Partnership?s open positions is directly reflected in
the Partnership?s earnings and cash flow.

The Partnership?s risk exposure in the market sectors traded by
the Trading Managers is estimated below in terms of VaR. The
Partnership estimates VaR using a model based upon historical
simulation (with a confidence level of 99%) which involves
constructing a distribution of hypothetical daily changes in the
value of a trading portfolio.  The VaR model takes into account
linear exposures to risk including equity and commodity prices,
interest rates, foreign exchange rates, and correlation among
these variables. The hypothetical changes in portfolio value are
based on daily percentage changes observed in key market indices
or other market factors (?market risk factors?) to which the
portfolio is sensitive.  The one-day 99% confidence level of the
Partnership?s VaR corresponds to the negative change in portfolio
value that, based on observed market risk factors, would have
been exceeded once in 100 trading days, or one day in 100.  VaR
typically does not represent the worst case outcome.  Demeter
uses approximately four years of daily market data (1,000
observations) and re-values its portfolio (using delta-gamma
approximations) for each of the historical market moves that
occurred over this time period.  This generates a probability

<page> distribution of daily ?simulated profit and loss?
outcomes.  The VaR is the appropriate percentile of this
distribution.  For example, the 99% one-day VaR would represent
the 10th worst outcome from Demeter?s simulated profit and loss
series.

The Partnership?s VaR computations are based on the risk
representation of the underlying benchmark for each instrument or
contract and do not distinguish between exchange and non-exchange
dealer-based instruments. They are also not based on exchange
and/or dealer-based maintenance margin requirements.

VaR models, including the Partnership?s, are continually evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve.  Please note that the VaR model
is used to numerically quantify market risk for historic
reporting purposes only and is not utilized by either Demeter or
the Trading Managers in their daily risk management activities.
Please further note that VaR as described above may not be
comparable to similarly-titled measures used by other entities.

The Partnership?s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership?s open positions as a percentage of total Net Assets
by primary market risk category at March 31, 2007 and 2006.  At

<page>
March 31, 2007 and 2006, the Partnership?s total capitalization
was approximately $18 million and $23 million, respectively.

Primary Market	            March 31, 2007       March 31, 2006
Risk Category	              Value at Risk        Value at Risk

Currency	(1.61)%	(0.90)%
Equity	(1.11)	    (1.35)
Interest Rate                   (0.50)	    (5.57)
Commodity                       (0.61)	(0.32)
Aggregate Value at Risk         (2.04)%	(6.39)%

The VaR for a market category represents the one-day downside risk
for the aggregate exposures associated with this market category.
The Aggregate Value at Risk listed above represents the VaR of the
Partnership?s open positions across all the market categories, and
is less than the sum of the VaRs for all such market categories
due to the diversification benefit across asset classes.

Because the business of the Partnership is the speculative
trading of futures, forwards, and options, the composition of its
trading portfolio can change significantly over any given time
period, or even within a single trading day.  Such changes could
positively or negatively materially impact market risk as
measured by VaR.


<page> The table below supplements the quarter-end VaR set forth
above by presenting the Partnership?s high, low, and average VaR,
as a percentage of total Net Assets for the four quarter-end
reporting periods from April 1, 2006 through March 31, 2007.

Primary Market Risk Category	   High		 Low		  Average
Currency	(1.66)%	(0.68)%	(1.32)%

Equity	(2.44)	(0.55)	(1.40)

Interest Rate	 (1.74)	(0.50)	(0.95)

Commodity	(1.11)	(0.21)	(0.74)

Aggregate Value at Risk	(2.95)%	(1.67)%	(2.22)%



Limitations on Value at Risk as an Assessment of Market Risk
VaR models permit estimation of a portfolio?s aggregate market
risk exposure, incorporating a range of varied market risks,
reflect risk reduction due to portfolio diversification or hedging
activities, and can cover a wide range of portfolio assets.
However, VaR risk measures should be viewed in light of the
methodology?s limitations, which include, but may not be limited
to the following:
*	past changes in market risk factors will not always result in
accurate predictions of the distributions and correlations of
future market movements;
*	changes in portfolio value caused by market movements may
differ from those of the VaR model;


<page>
*	VaR results reflect past market fluctuations applied to
current trading positions while future risk depends on future
positions;
*	VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
*	the historical market risk factor data used for VaR estimation
may provide only limited insight into losses that could be
incurred under certain unusual market movements.

In addition, the VaR tables above, as well as the past performance
of the Partnership, give no indication of the Partnership?s
potential ?risk of ruin?.

The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at March 31, 2006, and for the four quarter-end
reporting periods from April 1, 2006 through March 31, 2007.  VaR
is not necessarily representative of the Partnership?s historic
risk, nor should it be used to predict the Partnership?s future
financial performance or its ability to manage or monitor risk.
There can be no assurance that the Partnership?s actual losses on
a particular day will not exceed the VaR amounts indicated above
or that such losses will not occur more than once in 100 trading
days.
<page>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances.  These balances and any market risk they may represent
are immaterial.

The Partnership also maintains a substantial portion of its
available assets in cash at MS&Co. (Morgan Stanley DW, prior to
April 1, 2007); as of March 31, 2007, such amount is equal to
approximately 94% of the Partnership?s net asset value.  A decline
in short-term interest rates would result in a decline in the
Partnership?s cash management income. This cash flow risk is not
considered to be material.

Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses, taking into account the leverage,
optionality, and multiplier features of the Partnership?s market-
sensitive instruments, in relation to the Partnership?s Net
Assets.

Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership?s
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the

<page> Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnership?s primary market risk
exposures, as well as the strategies used and to be used by
Demeter and the Trading Managers for managing such exposures, are
subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership?s
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expropriations,
illiquid markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an
influx of new market participants, increased regulation, and many
other factors could result in material losses, as well as in
material changes to the risk exposures and the risk management
strategies of the Partnership. Investors must be prepared to lose
all or substantially all of their investment in the Partnership.

The following were the primary trading risk exposures of the
Partnership at March 31, 2007, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Currency.  The largest market exposure of the Partnership at March
31, 2007, was to the currency sector.  The Partnership?s currency
<page> exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
between different currencies and currency pairs.  Interest rate
changes, as well as political and general economic conditions
influence these fluctuations.  The Partnership trades a large
number of currencies including cross-rate ? i.e., positions
between two currencies other than the U.S. dollar.  At March 31,
2007, the Partnership?s major exposures were to Australian dollar,
euro, Swiss franc, Japanese yen, and British pound currency
crosses, as well as to outright U.S. dollar positions.  Outright
positions consist of the U.S. dollar vs. other currencies.  These
other currencies include major and minor currencies.  Demeter does
not anticipate that the risk associated with the Partnership?s
currency trades will change significantly in the future.

Equity.  The second largest market exposure of the Partnership at
March 31, 2007, was to the global stock index sector, primarily to
equity price risk in the G-7 countries.  The G-7 countries consist
of France, the U.S., Britain, Germany, Japan, Italy, and Canada.
The stock index futures traded by the Partnership are by law
limited to futures on broadly-based indices.  At March 31, 2007,
the Partnership?s primary exposures were to the DAX (Germany),
TOPIX (Japan), NIKKEI 225 (Japan), and NASDAQ 100 (U.S.) stock
indices.  The Partnership is primarily exposed to the risk of
adverse price trends or static markets in the U.S., European, and
<page> Japanese stock indices.  Static markets would not cause
major market changes but would make it difficult for the
Partnership to avoid trendless price movements, resulting in
numerous small losses.

Interest Rate.  At March 31, 2007, the Partnership had market
exposure to the global interest rate sector.  This exposure was
primarily spread across the U.S., European, and Japanese interest
rate sectors.  Interest rate movements directly affect the price
of the sovereign bond futures positions held by the Partnership
and indirectly affect the value of its stock index and currency
positions.  Interest rate movements in one country, as well as
relative interest rate movements between countries, materially
impact the Partnership?s profitability.  The Partnership?s
interest rate exposure is generally to interest rate fluctuations
in the U.S. and the other G-7 countries.  Demeter anticipates that
the G-7 countries? interest rates will remain the primary interest
rate exposures of the Partnership for the foreseeable future.  The
speculative futures positions held by the Partnership may range
from short to long-term instruments.  Consequently, changes in
short, medium, or long-term interest rates may have an effect on
the Partnership.




<page>
Commodity.
Metals.	The third largest market exposure of the
Partnership at March 31, 2007, was to the metals sector.
The Partnership?s metals exposure was to fluctuations in the
price of precious metals, such as gold, as well as base
metals, such as aluminum and copper.  Economic forces,
supply and demand inequalities, geopolitical factors, and
market expectations influence price movements in these
markets.  The Trading Managers utilize their trading
system(s) to take positions when market opportunities
develop, and Demeter anticipates that the Partnership will
continue to do so.

Energy.  At March 31, 2007, the Partnership had market
exposure to the energy sector.  The Partnership?s primary
energy exposure was to futures contracts in crude oil and its
related products, as well as natural gas.  Price movements in
these markets result from geopolitical developments,
particularly in the Middle East, as well as weather patterns,
and other economic fundamentals.  Significant profits and
losses, which have been experienced in the past, are expected
to continue to be experienced in the future.  Natural gas has
exhibited volatility in price resulting from weather patterns
and supply and demand factors and will likely continue in
this choppy pattern.
<page>
Soft Commodities and Agriculturals.  At March 31, 2007, the
Partnership had market exposure to the markets that comprise
these sectors.  Most of the exposure was to the soybeans,
sugar, cocoa, coffee, and wheat markets. Supply and demand
inequalities, severe weather disruptions, and market
expectations affect price movements in these markets.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at March 31, 2007:

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at March 31, 2007, were in euros, British
pounds, Swiss francs, Japanese yen, and Australian dollars.
The Partnership controls the non-trading risk of foreign
currency balances by regularly converting them back into U.S.
dollars upon liquidation of their respective positions.

Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Managers, separately, attempt to
manage the risk of the Partnership?s open positions in essentially
the same manner in all market categories traded.  Demeter attempts
to manage market exposure by diversifying the Partnership?s assets
among different Trading Managers in a multi-manager Partnership,
each of whose strategies focus on different market sectors and
<page> trading approaches, and by monitoring the performance of
the Trading Managers daily.  In addition, the Trading Managers
establish diversification guidelines, often set in terms of the
maximum margin to be committed to positions in any one market
sector or market-sensitive instrument.

Demeter monitors and controls the risk of the Partnership?s non-
trading instrument, cash.  Cash is the only Partnership investment
directed by Demeter, rather than the Trading Managers.


Item 4.	CONTROLS AND PROCEDURES

   (a)	As of the end of the period covered by this quarterly
report, the President and Chief Financial Officer of
Demeter, the general partner of the Partnership, have
evaluated the effectiveness of the Partnership?s
disclosure controls and procedures (as defined in Rules
13a?15(e) and 15d?15(e) of the Exchange Act), and have
judged such controls and procedures to be effective.

(b)	There have been no material changes during the period
covered by this quarterly report in the Partnership?s
internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) or in
other factors that could significantly affect these
controls subsequent to the date of their evaluation.


Item 4T.	CONTROLS AND PROCEDURES


Not applicable.
























<page> PART II.  OTHER INFORMATION

Item 1A. RISK FACTORS

Information regarding risk factors appears in Item 2.
?Management?s Discussion and Analysis of Financial Condition and
Results of Operations? and Item 3.  ?Quantitative and Qualitative
Disclosures about Market Risk? of this Form 10-Q.  There have been
no other material changes from the risk factors previously
referenced in the Partnership?s Report on Form 10-K for the fiscal
year ended December 31, 2006.


Item 6.  EXHIBITS

31.01	Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.02	Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32.01	Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.02	Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.







<page>








SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.



				         Morgan Stanley Cornerstone Fund III L.P.
				         (Registrant)

                     By:   Demeter Management Corporation
                           (General Partner)

May 15, 2007         By:   /s/Lee Horwitz
                              Lee Horwitz
                              Chief Financial Officer







The General Partner which signed the above is the only party
authorized to act for the Registrant.  The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.














? 48 ?